| HONG KONG/MELBOURNE
HONG KONG/MELBOURNE Dec 4 China's ENN Group,
the top shareholder in Santos Ltd, will be watching
closely when the Australian gas producer outlines its strategy
on Thursday to pay down debt and cope with weak oil and gas
ENN Ecological Holdings, a unit of ENN, bought
an 11.7 percent stake in Santos from Chinese private equity firm
Hony Capital for $750 million in March, but its stake is now
worth 9 percent less, even though oil prices have jumped by a
third since then.
ENN has asked for a seat on the board, a senior ENN
Ecological official told Reuters, confirming a report in the
Australian Financial Review, but added it was unclear whether
Santos would grant the request.
Santos declined to comment.
Santos shareholders in Australia said it is too early to
tell whether ENN might make a bid and said they wanted to
understand more about ENN's capacity to fund a takeover. Recent
comments by ENN Chairman Wang Yusuo, whose goal is to build ENN
into China's fourth largest energy group, hint at its longer
"Mr John Zhao of Hony Capital and Mr Liu Chuanzhi of [Hony
backer] Legend Holdings have offered us a lot of support while
we are actively exploring the upstream segment of the industry,"
Wang said at Hony Capital's annual investment forum on Nov. 14.
"With the support of Hony, we have successfully acquired a
stake in Australia's Santos this year. It is a very good company
which focuses on gas exploration and production. With it, ENN
can cover the entire value chain of the gas industry," he said.
ENN is bullish on Santos over the medium term, based on
forecasts it gave in response to a query from the Shanghai stock
exchange in September, after the Australian company booked a $1
billion writedown on its flagship Gladstone gas project.
In the near term, however, it is more bearish than analysts,
who expect Santos to book a $337 million profit in 2017. ENN
sees Santos booking a small loss, then returning to a profit of
$645 million in 2018, improving to $1.1 billion a year later.
The 2018 forecast is towards the top end of seven analysts'
estimates, while its projection for 2019 is well above two
forecasts for that year, according to Thomson Reuters I/B/E/S.
Australian investors say Santos Chief Executive Kevin
Gallagher needs to focus on slashing costs and cutting net debt
by around $1 billion, to $3.5 billion.
"They just need to spend as little as possible without
starving the business - fingers crossed the oil price goes in
their favour," said Jason Beddow, Chief Executive of Argo
Investments, which owns a stake in Santos.
(Reporting by Julie Zhu and Sonali Paul; Editing by Richard